Analysis

AT Kearney predicts that the e-commerce market in the GCC will reach $24bn by 2020. The UAE is currently the biggest market in the region when it comes to online shopping, although the management consultancy predicts it will have slipped to second place by 2020, with Saudi Arabia, by far the most populous market in the region, taking the lead in the sector. Within the UAE, Dubai has also been a leading light in sector rollout, generating many of the online platforms and innovative ideas currently growing market share.

Challenges remain to overcome, naturally, not least the increasingly innovative approaches deployed by bricks-and-mortar stores. Yet recent moves by the emirate’s authorities – and notably its free zones – are helping address some of the logistical, financial and regulatory issues holding e-commerce back. Indeed, as the home of Smart Dubai, e-commerce of all kinds constitutes a clear focus of the emirate’s development plans going forward (see ICT chapter).

Sector Growth

The first global success in e-commerce from Dubai was the online shopping platform Souq.com, founded in 2005 and bought by Amazon in 2017 for $580m. By then, it had become the largest e-commerce platform in the Arab world, and it still holds a dominant position, with 52.67m visitors in June 2018. Souq grew to include localised operations in Saudi Arabia and Egypt as well as the UAE, with additional delivery ability in Oman, Qatar, Bahrain and Kuwait.

Since 2017, however, Souq.com has had a competitor in Noon.com. Launched by Emaar Malls, which had earlier tried to buy Souq.com but lost out to Amazon, Noon is 50%-owned by the Saudi sovereign wealth fund, which, along with several private investors, raised $1bn in first-round funding. The platform launched at the start of 2018 in the UAE and Saudi Arabia with some 20m products. Noon.com has a number of strategic agreements and partnerships – with eBay since mid-2018, with Saudi Arabia’s United Electronics Company since 2017, and with Yoox Net-a-Porter, which a subsidiary of Emaar Malls had earlier bought into, back in 2016. This gives the new entrant access to a wide range of other networks and services, with the company’s strategy being to add more, including a groceries retailer, in 2019. In June 2018 Noon.com had 1.5m visitors. Souq.com had 78 times more, however.

Meanwhile, Dubai and the wider UAE is now home to a diverse range of e-commerce sites. These include general stores, such as Awok.com and Openkart.com, luxury retailers such as Al Tayer’s Ounass.com, fashion stores, such as Elabelz.com and Namshi.com, and electronics platforms such as Jumbo.ae and Letstango.com.

A further online retail outfit that is due to go live in 2020 is Mall.Global, which will furnish brands with a virtual reality tool kit to enable them to market their products through the site, while also offering try-andbuy services for clothing and other fashion items. This will continue a process of technical innovation with online platforms that other sites have also been advancing. Noon.com, for example, is set to introduce online auctions for products in 2019.

Building the Ecosphere

The emirate’s authorities have also been keen to develop e-commerce. One of the six themes of Dubai Plan 2021, the emirate’s development strategy, is for a “Smart and Sustainable City”, with Smart Dubai being a seamlessly integrated city built on an online backbone. Public and private sector initiatives and services are being brought together to drive this, with a good example being the Dubai CommerCity (DCC), a Dh2.7bn ($734.9m), 2.1m-sq-metre facility being built next to the airport.

A joint venture between the Dubai Airport Free Zone Authority and wasl Asset Management Group, this will be the first dedicated e-commerce free zone in the MENA region. In October 2018 DCC reported some Dh3.2bn ($871m) of investments had been made in the zone, with the leasable area extended by around a third in response to demand, and construction slated to start in the first half of 2019. Delivery of the first phase is expected to come in 2020. Dubai CommerCity intends to leverage its proximity to the airport and local communications routes to bring together logistics companies with e-commerce outfits, while also providing a mix of residential, retail and social facilities.

Meanwhile, the Dubai Free Zones Council (DFZC) has begun working on a range of new regulations concerning e-commerce that are aimed at boosting foreign direct investment (FDI) in the sector, as well as its operational efficiencies in areas stretching from air cargo procedures to blockchain adoption. In April 2018 the DFZC announced that it was forming a series of teams and organising workshops to examine what changes should be made and establish timelines for them. The DFZC clearly aims to do what it can to establish Dubai as a leading global hub for e-commerce, whether that be within the UAE, or internationally, as a key logistics centre for trans-shipment of goods.

Making Delivery

This also raises the key question of e-commerce’s essential links to the logistics sector. These links were highlighted in 2016, when Mohamed Alabbar, the chairman of Emaar Properties and founder of Noon.com, led two investor groups in purchasing a 16.5% stake in the Dubai-based courier, Aramex. This company reported Dh2.1bn ($571.6m) in revenue for 2017, Dh1.02bn ($277.6m) of which was from the MENA region, a 4% increase on 2016, with e-commerce developments a major factor in its business. Key to a successful e-commerce business is the last mile of the chain, with this traditionally posing a challenge in Dubai and other MENA countries. Conventional street addresses and post codes are largely absent in the emirate. Workarounds, such as asking for details of local landmarks or customer phone numbers, can help circumvent this problem but often prove time consuming.

Recent times, however, have seen some major breakthroughs in this area. Fetchr, a Dubai-based start-up, uses the GPS coordinates of the customer’s mobile phone to assign an address to them, with this system now also being used by rivals, such as new entrant Quiqup. This UK-headquartered company, which specialises in same-day delivery, chose Dubai as its first overseas market, saying that one big advantage of the emirate is its compact size and high population density.

Meanwhile, Aramex moved to a flexible work schedule for its courier service in the emirate in 2017. This works much like a Uber-type service, with an app available for registered couriers, who then work according to demand. The system obviates a permanent fleet of vehicles and drivers, thus cutting costs.

Paying Up

A further long-standing brake on e-commerce adoption in the emirate has been financial. Many Emiratis and expats prefer to make cash payments, rather than paying with a credit or debit card online, while until recently online payment systems and gateways had been underdeveloped.

While the former obstacle remains a feature of the e-commerce landscape in Dubai and the wider region, the latter has changed greatly in recent years. Online businesses can choose from a variety of local payment gateways, including PayFort, Innovate Payments, CashU, and CyberSource. These are in addition to established international gateways, such as PayPal, WePay, Google Wallet and Amazon Payments.

Many shoppers in the region and elsewhere also prefer to experience the physical product before purchasing, particularly when it comes to clothing and footwear. Online outlets offering returns services have tried to address this need, but with varying degrees of customer satisfaction. Indeed, a recent survey by PwC of the UAE, Saudi Arabia and Egypt showed that, while online shopping had initially dented in-store purchases, over time customers had returned to bricks-and-mortar stores in order to experience products first hand. In 2013 some 37% of consumers in the three markets shopped solely in-store, while in 2017 the figure was 43%. One innovation that aims to address this is click and collect, which converges online and offline shopping. Outlets offering this service range from Al Futtaim ACE’s hardware stores to Centrepoint’s fashion and lifestyle stores, with bricks-and-mortar retailers potentially able to upsell and reinforce brand engagement when consumers come through their doors to view their online selections. Stores can also offer home delivery services, which can be popular with consumers, although they do add logistics costs. For such systems to work well, stores also need to have good, real-time IT services, able to keep customers informed of what physical products are on the shelves – either in-store or at the warehouse – and to track them throughout the process. Dubai is in a very strong position when it comes to such IT services, boasting high-quality and high-speed networks. It is also over-saturated with mobile devices, with a September 2018 report from research firm Statista finding that the UAE had the highest penetration rate in the world, at 173%.

The year ahead is set to see more growth in e-retail. This also has the potential to benefit some physical stores, as long as they are able to successfully integrate the whole consumer journey, from online to offline.